Sub: Service Tax – Clarification on the taxability of          Maintenance of Computer Software – Reg.

(Issued from File C.No.IV/16/302/2004 S.Tax)

Circular No.70/19/2003 – ST.

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

DEPARTMENT OF REVENUE

CENTRAL BOARD OF EXCISE & CUSTOMS

F.No:256/9/2003-CX-4                                   New Delhi, the 17^th December, 2003.

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An issue has been raised whether the organisations who are engaged in design, development and maintenance of software and enter into annual maintenance contracts for maintenance of their software, are exempt from Service Tax ot not.

 2.     ‘Maintenance or Repair’ means any service provided by (i) any person under a maintenance contract or agreement or (ii) a manufacturer or any person authorized by him in relation to maintenance or repair or servicing of any goods or equipment.  In the instant case repair is not of tangible goods but of intangible program/software which is in installed condition and thus the maintenance and repair of software is not maintenance and repair of goods.  Further an exemption has been granted to maintenance and repair services in relation to computer, Computer systems and computer peripherals vide Notification No:20/2003-ST dated:21.08.2003.  As such computer software would form a part of the Computer system and thus maintenance of software being a sub-set of maintenance of computer systems would be covered under this notification.  Under the category of “Consulting Engineer” vide Notification 4/99-ST dated: 28.02.99 taxable service provided to any person by a consulting engineer in relation to computer software is exempted.  The Definition of “Business Auxiliary Service” also provides that; inter alia, maintaining of computer software is covered in the IT service, which is excluded from the scope of business auxiliary service.

 3.                Taking the above into consideration, it is clarified that maintenance of software is not chargeable to Service Tax